Adding Some Spice To The Industrial Trade

Despite General Electric Co. GE ranking as the worst-performing member of the Dow Jones Industrial Average last year, the industrial sector turned in a solid performance. The S&P Industrial Select Sector Index jumped 24 percent, topping the S&P 500 by 230 basis points.

Aerospace and defense stocks were primary drivers of the industrial sector's 2017 upside. For example, Boeing Co. BA and United Technologies Inc. UTX were among the standout performers in the Dow last year. Those stocks are among the top 10 holdings in the S&P Industrial Select Sector Index.

Aggressive traders looking to juice returns from the industrial sector in 2018 can consider the Direxion Daily Industrials Bull 3X Shares DUSL, which debuted in May 2017. The Direxion Daily Industrials Bull 3X Shares, the only triple-leveraged industrial sector ETF on the market today, seeks to deliver triple the daily returns of the Industrial Select Sector Index.

What's The Outlook?

The industrial sector benefited in 2017 from, among other catalysts, speculation that the Trump Administration would increase military spending and that airlines would boost spending on new aircraft. There are no guarantees the military spending catalyst will linger into 2018.

“But looking ahead to 2018, the industry is facing some potential headwinds worth keeping an eye on,” said Direxion in a recent note. “Namely, the risk of fewer government contracts and less public spending. While infrastructure and defense companies both once seemed like mortal locks to get funding from a 'pro-growth' government led by an administration that campaigned on a “historic” $1 trillion infrastructure plan, that now seems a little less likely now.” 

DUSL's underlying index allocates a quarter of its weight to aerospace and defense stocks. The benchmark also devotes almost 35 percent of its combined weight to machinery makers and industrial conglomerates. 

Interest Is Growing

While there are some potential risks for the industrial sector, there are some catalysts as well, including compelling valuations on some transportation stocks and industrials' status as a late-cycle play.

Those could be among the reasons why some traders are gravitating to DUSL. Over the past month, the ETF is averaging over $354,000 in daily inflows, according to Direxion data. 

“While military spending might seem to be on pace for further growth, the federal budget is a bipartisan dance, and Democrats can also play the deficit game,” notes Direxion.

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